Spain | Growth with no improvement in productivity?

The post-pandemic recovery process has been a mixed bag. On the plus side, both the labor force and employment have grown. However, GDP growth has not been enough to increase per capita income and productivity, and the gap with the EU has widened somewhat more than in the ten-year period leading up to COVID-19.

Key points

• Key points:
• A quick comparison between GDP growth (+2.1 points above end-2019) and hours worked (+1.3 points) reveals a fairly meagre increase in productivity per hour worked of just 8 tenths of a percentage point in almost four years, 4 less than in the EU.
• The growth rates of the various components of aggregate demand show that the external sector, which was 11.4% above its 2019 level, is no longer driving the recovery, in line with the slowdown in activity seen in Europe.
• Government expenditure has been by far the fastest-growing component of aggregate demand during the pandemic and the subsequent recovery, having climbed 9.8% above its pre-crisis level.
• However, investment has fallen slightly, thus further delaying its recovery. It is the component of aggregate demand showing the largest gap (2.5 percentage points) with respect to its 2019 level.
• Aside from the compositional effects associated with fluctuations in the weight of the various productive sectors, the weak productivity growth observed in Spain is clearly a product of the slow recovery in investment, the pace of which has declined relative to GDP growth. In the long run, investment—especially private investment in physical, technological, and human capital—will drive growth, while wages and welfare will be the forces helping per capita income catch up.

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